Record breaker
It’s hard to imagine anything other than Verizon’s US$49bn landmark offering in September winning the award for US Dollar Bond of the Year. Not only did the deal enable the US telecommunications company to finance its transformative US$130bn acquisition of Vodafone’s stake in Verizon Wireless, but it also redefined what is possible in terms of acquisition financing.
“It has reset the conversations around global finance by 180 degrees,” said Paul Spivack, head of investment-grade bond syndicate for Morgan Stanley, which was joint bookrunner alongside Bank of America Merrill Lynch, Barclays and JP Morgan. “All of a sudden, all kinds of activities can now be contemplated.”
The deal statistics alone are gob-smacking. The eight-tranche issue doubled the size of Verizon’s debt, was bigger than the three previous record-sized deals combined, attracted a book of more than US$100bn – with 3,000 line items from 1,206 investors and involving ticket sizes of as much as US$10bn each.
Angst about a potential taper from the US Federal Reserve has pushed funding costs higher through the summer, and had led Verizon to push Vodafone to settle on a price for the Verizon Wireless stake. News of the acquisition it had chased for the past decade came just in the nick of time, with the deal accelerated to price a week before the September Fed meeting, when the taper was expected.
With another bout of rate volatility looming, Verizon planned to take out as much as it possibly could of the US$49bn it needed to fund its US$61bn acquisition bridge. But it never dreamed it would do it all at once. “The initial expectation was that doing US$25bn to US$30bn would be pushing the envelope,” said Anne Daley, head of the debt syndicate at Barclays.
Size meant sacrificing spread, and a lot of it – Verizon had to offer a 50bp new-issue concession on top of the 50bp widening its curve had seen in secondary markets since the acquisition announcement. The bonds screamed in 100bp after pricing, and many investors were disgruntled by revelations that BlackRock and Pimco received US$5bn and US$8bn each.
Yet forsaking price to get size was essential. Verizon knew months before the acquisition was clinched that to get the banks to lend the US$61bn bridge required a virtual guarantee that the deal could be taken out quickly – the fact that the deal was bigger than Wall Street’s entire daily secondary trading volume made it impossible for the banks to support after-market trading. Success, therefore, required the enlistment of the real power brokers in the bond markets – the likes of Pimco and BlackRock.
“Could it have been priced 10bp or 25bp tighter? Sure, but it would have looked more like a US$25bn to US$30bn deal,” said Jim Probert, head of DCM at BofA Merrill.
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